So, you want to buy a foreclosure...
Do you want to get a GREAT DEAL and buy a foreclosure?! Well, get in line and join everyone else and their mother, sister, and brother, because this seems to be the thing to do now, that is to GET A GREAT DEAL of course!! Sorry, I'm trying not to get too sarcastic here, I just heard another "call now for your free foreclosure list" commercial that inspired me to break it down and explain how the buying of a foreclosure really works, and what to expect with no B.S.
Approx. 1/3 sell to investors at auction -- an investor may then remodel, repair, and resell for a profit
Approx. 1/3 sell on the open market as REO (listed on MLS)
The short sale process can take anywhere from 1-12 months, about 5-6 months on average. This process takes so long (from when a buyer's offer is presented to the seller) because the lender(s) holding the mortgage is taking a loss and will have to justify why taking the loss via short sale makes more sense for them then alternatively foreclosing on the property. While you're waiting for your offer to be addressed, appraisals, broker price opinions, and negotiating between lender(s), the seller, and buyer, will take place. Why does it take so long? Because banks operate between 9-5 Monday-Friday and are handling thousands of short sales at a time -- it's just the way it works, unfortunately.
Real estate bought at auction can be risky (condition of the property and liens attached to it are unknown) and is usually best left to the investors who buy multiple properties at once... oh and you have to pay with cash in hand (cashier's check). When you buy real estate at auction you're usually buying an occupied property -- this can be a challenge if the occupant does not want to leave, or not right away at least, and if the property is protected by rent control (San Francisco, Oakland, East Palo Alto).
Buying REO is the least complicated way about of buying a foreclosure -- it's listed for sale on the open market, properties are typically vacant/more accessible, you're dealing directly with the seller (bank). Your offer will always be countered when buying REO. Even if your offer price is accepted, you'll be countered. The bank's counter offer will basically rewrite the purchase contract and allow you only 7-10 days to have the property inspected and approve disclosures. There will also be a clause in the bank's counter offer indicating buyer is to pay seller $100-$150 per diem, or pay $100-$150 for each day the buyer doesn't close escrow if the buyer should be delayed in closing escrow.